By Doug Busch
After a period of volatility, homebuilder stocks are beginning to show signs of stabilization, offering potential opportunities for patient investors. Rising mortgage rates and persistent supply-chain constraints have kept valuations in check. While the sector still faces headwinds, selective stocks are trading at levels suggesting a measured rebound could be underway -- making careful stock-picking more important than ever.
The iShares U.S. Home Construction ETF is down 6% year-to-date and 2% over the last one year period. It has not recorded a three-session winning streak since the beginning of February and recently suffered a steep five-week losing streak between late February and March that sliced one-quarter of the fund's value off.
Its daily chart shows it at a critical juncture as a bear flag formation takes shape. Bulls have some things to be optimistic about, but bears are in control. A bullish MACD crossover and bullish RSI divergence are two strong indicators suggesting a potential positive reversal.
Notably, two doji candles appeared on March 19 and April 1, which can signal a shift in trend, though technicians typically look for price confirmation. That confirmation would come from a break above the bear flag -- requiring a break above $93. Remain cautious until that unfolds, as a break under $88 could cause a sizable drawdown.
The iShares U.S. Home Construction ETF was trading around $90 Monday.
Toll Brothers may have to lead the way. Out of the large-cap homebuilders, it has held up the best. Over the last one year period, Toll Brothers is up 34%, whereas PulteGroup and D.R. Horton gained 16% and 10%, and NVR and Lennar declined 10% and 21%, respectively. Its durability is partly due to its luxury component.
Looking at its daily chart it is the only one trading near its 200-day simple moving average and its superiority is visible on the ratio chart against the iShares U.S. Home Construction ETF. On Feb. 4, it broke above a five-month cup-base pivot of $149.89, but the breakout quickly fizzled -- a red flag. A doji candle and a bearish shooting star on Feb. 12 and 18 reinforced that weakness.
In my opinion the recent lows must hold, with a potential stop of below $130. If the stock gains strength, it could reach $175 by year end, representing a 29% gain from current prices.
Toll Brothers was trading around $136 Monday.
If confidence is returning to housing, Toll Brothers may be where it shows up first.
Doug Busch is the senior technical analyst at Barron's Investor Circle . His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 06, 2026 14:23 ET (18:23 GMT)
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